a
demand by a credit-card provider for a retailer to
make good the loss on a fraudulent or disputed transaction

Chargebacks are often seen as
another business expense. However, they needn't be...

Unfortunately certain online
industries are more prone to Chargebacks than others
and more often than not should never have happened
(known as friendly fraud). Typically travel, subscriptions,
dietary, adult, music and film downloads, gaming,
file sharing and other intangible goods (to name a
few) are most at risk and is one reason they are classed
as high risk.

However, NOBODY, regardless
of what you may think, is Chargeback immune.

First of all Chargebacks can happen regardless of what
you are selling or how you run your business and are
pretty much inevitable. Nobody has a 100% safe business
when it comes to Chargebacks and it's the legal right
of every credit card holder to do one within 6 months
of making a transaction (so make sure you keep all transaction
details for at least 12 months).

A chargeback is when a credit card user (your customer)
successfully disputes a transaction. Disputes typically
arise from the customers dissatisfaction with merchandise
or services and represent one of the biggest risks faced
by merchants accepting online payments. Not only are
they costly, they can also get your merchant account
closed as both Visa and MasterCard allow only 1% of
the total number of your monthly transactions to be
a Chargeback.

Chargebacks are often necessary because a customer
has indeed received poor customer service or had their
card used without their authorisation. However that
doesn't always mean that by doing one they are being
fair. People will sometimes deliberately Chargeback
because as they are simply wanting said product or service
for free, cannot remember what they purchased or cannot
be bothered to ask for a refund. This is also known
as friendly fraud and VISA reported 70% of all chargebacks
are actually fraudulent.

As previously stated it is not possible for you to
avoid Chargebacks completely, however, the information
in this section could help you reduce the number of
Chargebacks you may receive.

Why a Chargeback
may occur

If a merchant cannot fulfil its obligations to its customers
i.e delivery, replacement or refund, or alternatively
a card has been used fraudulently, the genuine cardholder
is likely to return to their card issuer to begin a
Chargeback of any amounts paid or to dispute unrecognised
transactions that have appeared on their statement.

In the normal course of business, Chargebacks are passed
from the issuer (credit card company) to the acquirer
(who is debited by the issuer), who in turn would return
to the merchant to either gather sufficient information
to defend the Chargeback claim, or to recover monies
paid in Chargebacks.

Unfortunately, if in the meantime the merchant has
gone out of business the Chargebacks are unlikely to
be defendable and the Acquiring bank will stand the
loss. This is why we implement rolling reserves and
deferred settlements, to mitigate this exposure.

Transaction authorisation does
not prevent Chargebacks

Authorisation of a transaction does not guarantee payment;
it will only check the availability of funds at the
time of the transaction and that the card has not been
reported lost or stolen at the time of authorisation.

On April the 13th 2018 Visa introduced a new initiative
called VISA Claims Resolution (VCR), which replaced
the existing Chargeback process. This new initiative
was introduced in order to simplify dispute resolution,
reduce the timeframe's and improve efficiency of handling
disputed transactions.

Changes to the terminology used, as Chargebacks will
now be called Disputes, and Representments are simply
called Dispute Responses. This terminology is being
rolled out and will be displayed (if not already) in
the merchant’s account statements, reports, alert
emails and pricing plan following the introduction of
this new initiative.

The 22 chargeback reason codes which were replaced
with new reason codes are grouped
into 4 categories - Fraud, Authorisation, Processing
Error and Consumer Disputes.

Reason code ‘75 - transaction not recognised’
is being retired, as the issuer will now have greater
insight into the transaction history.

Customer Service

One way to reduce the number of Chargebacks is to provide
good customer service and have a high quality of goods/services
offered, as this will reduce the number of cardholders
raising disputed transactions with their card issuer.

For further information about providing high standards
of customer service within your online store refer to:

Criminals like to place orders over the phone using
stolen cards because they know that it’s sometimes
harder for you to detect fraud - depending on your virtual
terminal and merchant account facility. For example
our virtual terminal uses the same anti-fraud measurers
as ecomm transactions, however, because 'card holder
not present' transactions have very little evidence
associated with them (the card holder is not inputting
the card details, but the actual merchant), then credit
card companies are much more likely to process a chargeback
request without further investigation - leaving your
business to pick up the tab. Also extra security measures
such as 3D Secure can not be used in conjunction with
a Virtual Terminal. Something else criminals know all
to well.

The Chargeback
Process

Please find below information on the basic Chargeback
process:

One of your customers has
a problem with a transaction on your website.

The customer informs their
card issuer of the problem, and asks for their money
back

The card issuer does some
research to see if the shopper's demand is reasonable

If the customer seems to have
a case, the card issuer makes a provisional payment
to the shopper

The card issuer starts the
chargeback process, and obtains funds from the acquiring
bank

The acquiring bank sends a
'Notification of Chargeback' and a 'Request for Information'
to you

You receive an e-mail that
is the Request for Information (RFI).

If you ignore the RFI the
chargeback automatically proceeds unchallenged and
the money is gone

If you reply to the RFI we
forward any information you can give about the transaction
to the card issuer

The card issuer looks at the
information you have given and follows the rules associated
with the card

The card issuer decides if
the information you provide satisfies their criteria
*

* If the information you supply does satisfy the criteria.
You are paid for the transaction after a certain period
of time. If you fail to satisfy the criteria, or arrives
too late, the chargeback is automatically valid and
the bank pays the card issuer from your account. We
then charge you an admin fee for processing the chargeback.

Ways to minimize
chargebacks

Good customer service

The easier it is for customers to contact you
and speak to a real human being, the less likely
they are to resort to chargebacks.

Confirm what they have purchased and where it will be
delivered

Always provide a order confirmation page showing
the details of the purchase. This should include
your company name, what they purchased, their
billing and delivery address and how to contact
you. It is also a good idea to provide the descriptor
that will appear on their card or bank statement
- this is especially so for aggregated
payment services where by you share a descriptor.

Constantly communicate

Email them when you have received an order and
shipped it out. Contact them back straight away
if they contact you. Email is the best way to
communicate as it provides proof.

Have a good refund policy

A good refund policy is essential. It spells
out exactly how a customer can be refunded and
how they need to go about it. Make it up front
and easy to find

Provide terms and conditions and make them easily accessible

All terms and conditions need to be clearly stated
on all pages of the website. You should include
your cancellation and return policy. Making the
customer to “Check the Box” as part
of the agreement is also recommended.

Save as much information
as possible

Collect and store as much information on the
customer as well as the order as you can. This
will allow you to show that they did indeed buy
from you knowingly.

Use 3D secure and other
authentication tools

This forces the consumer to take extra steps
to validate their identity at the time of the
sale which can defer them from committing “friendly
fraud” later on.

Get a signature whenever
possible

Proof of signature is ideal as it stops a customer
from using the excuse that they did not get the
item.

Use your own data against them

Using your own data to
prevent chargebacks is a very effective way to
stop a thief from coming back and striking again.
Unfortunately, merchants often don’t Blacklist
the users that did a chargeback allowing new transactions
to go through. Many gateways and processors offer
this service for free to their merchants.

Remedying Chargeback
Issues

With all of our accounts when a Chargeback is issued
you will receive an RFI - Request For Information.

Even when you do receive a chargeback, you may be able
to resolve it without losing the sale. Simply provide
your acquirer with additional information about the
transaction or the actions you have taken related to
it.

For example, you might receive a chargeback because
the cardholder is claiming that credit has not been
given for returned merchandise. You may be able to resolve
the issue by providing proof that you submitted the
credit on a specific date. In this example and
similar situations, always send your acquirer as much
information as possible to help it remedy the chargeback.
With appropriate information, your acquirer may be able
to resubmit, or “re-present,” the item to
the card issuer for payment. Timeliness is also
essential when attempting to remedy a chargeback.

Each step in the chargeback cycle has a defined time
limit during which action can be taken. If you or your
acquirer do not respond during the time specified on
the request—which may vary depending on your acquirer—you
will not be able to remedy the chargeback.

Although many chargebacks are
resolved without the merchant losing the sale, some
cannot be remedied. In such cases, accepting the chargeback
may save you the time and expense of needlessly contesting
it.

Fraud Prevention
and Chargebacks

Fraud Prevention plays an important role in the reduction
of the number of Chargebacks you receive. Here is a
number of fraud prevention facilities and procedures
listed below:

Friendly fraud (we personally hate this industry
term as there is nothing 'friendly' about it) happens
when a customer makes a credit card payment with their
own card and then issues a chargeback through through
the card provider after receiving the goods or services
with the aim for getting them for free (in other words,
theft!) or because they fear that their bank statement
may be read by someone else and they get into trouble
(as is often the case in the adult industry).

"Friendly" fraud differs from online
fraud committed by criminals using stolen credit
cards. The challenge with friendly fraud is that there
is no way to verify the authenticity of the actual transaction,
which is in fact legitimate. We
find that this happens more with higher risk merchants
and also adult ones.

As of April 13th 2018 the current 22 chargeback reason
codes were replaced with new reason codes which are
grouped into 4 categories - Fraud, Authorisation, Processing
Error and Consumer Disputes.

Based on the category of the dispute there is a new
workflow for Fraud and Authorisation disputes. Visa
will perform a number of additional checks, including
checking if there’s been a refund on the transaction
and assign liability accordingly. If the merchant is
held liable they can no longer raise a representment,
but are still entitled to open a pre-arbitration if
there is compelling evidence that the transaction was
not fraudulent.

Zumigo.com
works with telcos around the world, leveraging their
mobile network data to match whether the name and
phone number being given on the online checkout page
matches the mobile device that is near the PC or laptop.

Ravelin.com
examines all your user data, spotting fraudsters while
you still have time to block them. Which means fewer
chargebacks, better margins and uninterrupted sales
growth

Get
started today ...

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